Centralised Investment Proposition – Philosophy, Quarterly Commentary and Updates
It is our long-held view, as members of Ribble Wealth Management Limited’s Investment Committee, that a well-managed, diverse portfolio is key to providing stable investment returns. On this basis, strategic asset allocation is central to our investment proposition, with individual funds within each asset class offering increased diversity.
However, it is acknowledged that we do not have access to all of the resources available to specialists in their field, and therefore have chosen to overlay our “house” view after the entire universe of available investments has been filtered via other independent service providers. Accordingly, the services of Rayner Spencer Mills Research (“RSMR”) have been deployed to provide quantitative screening on parameters including performance, volatility, charges and fund size, as well as qualitative screening on aspects such as the fund manager’s background, fund philosophy, management processes, risk controls and manager resources. In addition, software provided by both Synaptics and Distribution Technology allows further detailed analysis of the data. Our bespoke in-house systems are then used as a final overlay in order to select what we consider to be “best of breed” funds within each asset class.
After sense-testing the output from these various layers of analysis, portfolios are constructed, assessed and monitored on at least a quarterly basis, with ad hoc additional reviews if and when required or under exceptional circumstances.
A suite of nine risk-targeted portfolios (numbered two to ten inclusive, risk level one being a pure cash portfolio) have, as a result, been created within our Platforms (partnered via either Standard Life or Novia), these forming the basis of our Centralised Investment Proposition (“CIP”) and client offering.
These portfolios are reviewed on a regular basis with the aim of ensuring that the higher the level of risk accepted, the higher the level of return – and vice versa. Whilst some degree of variance is natural, portfolios are designed to perform largely in line with these expectations.
It goes without saying that any client with existing holdings that do not fit within the CIP (Investment Bonds, for instance) will be analysed independently and suitable recommendations made within the constraints of the relevant funds and contract.
Investment Committee reviews
August 2020 review
COVID remains with us, although the mortality rate continues to fall as social distancing and other measures have reduced the spread, and medical teams seem to have a better understanding of the suitability of treatment. Markets remain jittery but despite the FTSE-100 Index being 15% down over the past twelve months, most of our portfolios show profit. This gives further evidence that our view – that a well-diversified portfolio is appropriate, irrespective of appetite for risk – is justified.
We anticipate continued volatility for some time; the BLM movement has polarised opinion worldwide, and whilst many agree with the principle that black lives do indeed matter, the political and ideological motives of BLM are questionable and have led to rioting, particularly in the US. The forthcoming American election is also likely to lead to some short-term market reaction.
Nevertheless, after careful review we have maintained our overall asset allocation but two funds that have been on our “watch” list for some time have been removed and replaced with funds that we consider offer better prospects and at a slightly lower cost. Communications are in the process of being sent to clients impacted by the recommended change.
We continue to monitor markets on an ongoing basis – the Investment Committee reviews are carried out on a formal basis quarterly, but the fact remains that regular discussions are ongoing – and any further developments in this area will be advised directly.
May 2020 review
The COVID-19 outbreak triggered economic panic worldwide, resulting in an unprecedented spike in global equity market volatility, with severe declines exceeding 20% and extreme daily swings on a scale comparable to the financial crash of 2008.
Thus, in February/March a dramatic end to the equity bull market that had started back in March 2009 was marked as numerous countries went into lockdown in response to the pandemic, bringing economic activity to a virtual standstill globally.
Meanwhile, government bond yields and prices were highly volatile, with yields first hitting extreme lows on heightened fear, but then rising as panicked investors made indiscriminate sales, the rout being most evident in sectors viewed as most vulnerable, such as those related to travel and retail. Even energy was not exempt, the price of Brent crude oil falling to its lowest level since 2003.
We have reviewed the current benchmark asset allocations, which have proven resilient during this and other periods of market volatility, and carefully considered if we are witnessing a significant macro-economic regime change in the making.
However, after consideration, and given the current extreme market volatility and ongoing uncertainty as to how long the global lockdown measures will remain in place, we consider that now is not the time to make any changes to our asset allocation benchmarks. There are simply too many unknowns over the scale of the economic impact and recovery trajectory, the implications of the huge financial stimulus measures and the likelihood of a viable vaccine becoming widely available. A V-shaped recovery is still possible, although the upturn is not expected to be as steeply upward as the downturn – a more protracted recovery is likely – but our longer-term views remain unchanged.
March 2020 review
COVID-19 continues to panic markets, both the FTSE-100 and Dow Jones having fallen almost 10% from 21 February to 05 March. Markets dislike uncertainty, and we have that in abundance at present. However, as Andy Stanley once said, “Whenever there is fear, there is opportunity. When there is great fear, there is great opportunity”. Whilst our portfolios have suffered in these turbulent market conditions, due to their diversity the losses have been lower; for instance, our risk level 07 portfolio (to which most clients’ investments are committed within our Centralised Investment Proposition) has fallen less than 7%. Lower risk portfolios have suffered less – for instance, the risk level 04 portfolio has fallen just over 3%. We consider that markets have overreacted in the short term to what is likely to be a relatively short term (in investment terms) issue and our general advice remains unchanged – long-term investment strategies should not be affected by short-term volatility. However, our hope remains that an end to this uncertainty will arrive sooner rather than later, allowing markets to recover (as most infected people do!).
February 2020 review
Any student or world economics is familiar with the expression “when America sneezes, the rest of the world catches a cold” – although on this occasion it appears that it is China’s sneeze – as a result of the Novel Coronavirus (or COVID-19) – that has caused the rest of the world to catch a cold. Yes, markets are having an adverse reaction to this new disease that (at present) has no cure and is causing fatalities – particularly in the elderly, infirm and those with underlying health issues (as does the flu virus) but also in otherwise healthy individuals, with a 2% or so mortality rate. This has spooked markets, with global indices tumbling by several percent whilst gold-linked stocks have risen as investors seek a path to safety. Whilst this may have short-term benefits, selling an investment after it has fallen in value and buying one that has risen is, in our view, the completely wrong approach to long-term investment. The key to good, long-term results is to have a strategy and maintain it, adapting the strategy when necessary but avoiding short-term knee-jerk reactions. Our view is that markets will, undoubtedly, recover when medical science brings this virus under control and that a hold position is called for. Indeed, this may be an ideal opportunity to invest capital for the long term into markets…
We have reviewed all funds and remain content with these overall, all funds except one continuing to demonstrate outperformance within their peer group. The underperforming fund, held within the lower-risk portfolios (levels two to four inclusive) has been replaced, with all clients holding the fund having been advised and a suitable switch recommended.
We continue to monitor the situation but do not believe that any other changes are appropriate at the present time.
December 2019 review
The Conservatives won the General Election with a landslide majority of 80 seats, their largest since 1987, securing 43.60% of the overall vote (the highest percentage by any party since Margaret Thatcher’s win in 1979). Some of the constituencies voting Conservative have not voted this way in decades, if ever, but did register a strong “Leave” vote in the 2016 EU Referendum, effectively giving the Prime Minister Boris Johnson the mandate he sought to take Britain out of the EU. This is scheduled for 31 January 2020 and it would appear this will now happen. The UK market has reacted strongly and positively to the news, gaining in excess of 5%, with the pound’s value against major currencies also being buoyed and posting strong gains against the US Dollar and the Euro.
As a result of this improved degree of certainty, no action in respect of our portfolios is considered necessary at the present time and the review has reverted to its normal schedule, the next one being planned for February of next year.
November 2019 review
Markets have improved over the past three months, particularly in the UK, as some degree of stability – particularly with reference to a resolution of the Brexit crisis – appears to be on the horizon. The Prime Minister, Boris Johnson, continues to press on with his task of ensuring that the UK will leave the EU and whilst he has missed his own personal deadline (of 31 October 2019), is determined to ensure that the UK leaves by 31 January 2020. Parliament continues to dither and a General Election is now due to take place on 12 December 2019, where Boris Johnson hopes to achieve sufficient a majority so as to give him the mandate to “get on and deliver Brexit” (to quote his own words). Given this degree of uncertainty over the immediate future, markets continue to underperform although we are confident that a Conservative majority will see an immediate “Boris Bounce”. A Labour Government remains a concern – markets historically do not tend to perform well under Labour – as does a hung parliament, heralding yet more uncertainty. We will know in just a few weeks…
As a result of a combination of good performance from the funds that make up our portfolios, there have been no changes to these. However, the asset allocation models have been tweaked slightly with a slight reduction in the exposure to UK Gilts with a corresponding increase in Corporate Bond investment, the Equity exposure remaining unchanged.
A further review of funds is planned for next month following the results of the election.
August 2019 review
Markets continue to be extremely volatile. The Trump v China trade wars continue, as does uncertainty over Brexit – will it happen, won’t it, will it be hard or soft? There are no known answers. Theresa May has resigned as UK Prime Minister, Boris Johnson (a staunch Eurosceptic) having taken over. The FTSE-100 took a tumble over the past few days, almost reaching its intraday all time high of 7,792 on 30/07/2019 when it reached 7,727 before abruptly crashing back to a close of 7,171 on 06/08/2019 – a loss in a week of just over 7% before recovering to 7,286 (up 1.60%) on 08/08/2019. We expect volatility to continue but this should not deter long-term investors – indeed, the current market correction might be an opportunity.
There have been a number of changes to our portfolios; a new fund has been added to our Emerging Markets strategy to increase diversity and three funds have been replaced (two UK funds and one US); clients have been advised of the recommended changes and are responding promptly, allowing us to ensure that client portfolios remain aligned with their attitude to risk.
By the time our next scheduled review takes place, we will have left the EU – or will we? – and the impact on markets remains an unknown, hence our recommendation that clients remain invested. We acknowledge that a “cliff edge” Brexit may have a negative effect on markets in the short term, leading to declines in portfolio values, but equally acknowledge that a deal may create a surge in market values – it is impossible to know. Long-term investors (our clients) should therefore sit tight; short-term investors (not our target market) should not be in markets at all, in our view, unless they are happy with the risks. Let us hope that, whatever the outcome, it is positive for markets and the economy as a whole. We shall see soon enough…
May 2019 review
There has been strong recovery in the last three months, supporting our view that until major issues are resolved, there will continue to be much volatility in markets. It would be impossible to not be aware that the UK did not leave the EU as planned on 29 March, this date having been extended to 31 October – and may, as yet, be further extended or foreshortened depending on the next Conservative leader and their ongoing negotiations with the EU. The US and China continue their feud over trade, resulting in additional volatility. There have been no changes to our portfolios following the quarterly review, although a couple of funds have been moved to our watch list and we will continue to monitor progress in these.
February 2019 review
Given extraordinarily high levels of volatility in world markets, as a result of numerous factors – the forthcoming leaving of the EU next month on 29 March(?), Trump’s rhetoric with China over trade, tensions between the US and Russia and Venezuela’s ongoing crisis, to name but a few – a conscious decision has been made to adopt a “hold” strategy with reference to portfolios held within our Centralised Investment Proposition. Strategic restructuring was recommended in the last review and no further changes are felt to be appropriate at the present time.
November 2018 review
What a difference a day – or a quarter – makes… One would have to be living in the wilderness not to be aware of the current levels of volatility in the UK and world markets generally – particularly the UK. Brexit continues to cause major issues, not just for the Conservative Party, but for the stock market given the major concerns surrounding a possible “no-deal Brexit”. We, as a firm, do not make political comment on these matters but the impact on portfolios is there to be seen. As expected, whilst the lower risk portfolios have actually seen positive growth (albeit limited), the higher risk portfolios have resulted in “losses” in the short-term, the greater the level of risk resulting in greater levels of loss – although a loss is not a loss unless it is crystallised, and for those who continue to hold their nerve during these difficult times, there are potential rewards to be had. Indeed, some might consider the current markets to be a buying opportunity – but only time will tell!
However, we remain content that our well-diversified portfolios have stood up well against many of the major indices but extensive research carried out prior to the most recent review has led us to the conclusion that still further diversification is appropriate, with more specialist investments being included to reduce volatility and improve returns. As a result, ALL clients have been contacted with recommendations for a restructured portfolio to include these new investments and we believe that this will bear fruit in the coming months as volatility (in our view) is likely to continue.
Longer-term prospects remain positive, with the economy generally being robust (supported by increased revenue as a result of a weak pound attracting foreign buyers, higher levels of tourism and greater domestic spending from “staycations” following a good summer). However, we continue to monitor the situation and consider whether or not the main “headwinds” will continue into 2019, potentially bringing an end to the current economic and market cycle, and will update the portfolios in our Centralised Investment Portfolio on an ongoing basis, making changes (with client approval) where appropriate.
August 2018 review
All portfolios have seen positive movement over the past three months, but the volatility in Emerging Markets has resulted in the higher risk portfolios (risk levels 08, 09 and 10) underperforming the lower risk portfolios in this short time period. This represents, in our view, a buying opportunity in this sector but we have not increased our allocation due to the higher risk nature that Emerging Markets represent generally. Our current asset allocation and fund selection remains unchanged at the present time, although due to the underperformance of one of the Emerging Markets funds that make up our exposure to this sector, an investigation into the reasons for this has been instigated and the fund will continue to be monitored closely.
As has been demonstrated consistently since inception, and reinforced in the analysis of performance since inception, risk and reward continue to be highly correlated – the higher the level of risk taken, the higher the level of return, although one must always remember that (a) past performance is not necessarily a guide to the future and (b) higher levels of risk are likely to result in higher levels of loss in poor market conditions; you should never take a risk that you are not comfortable with or cannot afford.
May 2018 review
World markets continue to be volatile, this now being reflected in the short-term performance of all portfolios, and whilst the highest risk portfolios have seen losses over the past three months, over the past twelve months all portfolios have seen positive movement.
There have been no changes to our recommended asset allocation or indeed the individual funds, with the exception of cash holdings held within the lower risk portfolios, where a change of fund has been recommended; all affected clients have been duly advised and alternative recommendations made.
February 2018 review
World markets have been extremely volatile over the past few weeks, although we consider this to be an overdue correction rather than an indicator that a bear market is nigh. This volatility is not reflected in the performance of the portfolios since the market turbulence only began at the very end of January/beginning of February.
In the UK, the FTSE 100 Share Index fell from a close of 7,778.64 on the 12th of January to a close of 7,092.43 on the 9th of February, a loss of 8.82%. It has, however, started to recover and closed at 7,294.70 on the 16th of February, up 2.85% from the 9th and down 6.22% since the 12th of January.
The US saw the Dow Jones peaking at a close of 26,616.71 on the 26th of January, falling to 23,860.46 on the 9th of February and recovering to 25,219.38 on the 16th – an initial loss of 10.36% before a recovery of 5.70% left it 5.25% down.
A similar pattern occurred in the Far East; the Hang Seng (Hong Kong’s stock market) fell 11.14% from a close of 33,154.12 on the 26th of January to 29,459.63 on the 12th of February, before improving to end on 30,515.60 on the 14th when it closed for the Chinese New Year, 3.58% up but still 7.96% down from the 26th of January. The Nikkei 225 (the stock market of Japan) reached 24,124.15 on the 23rd of January, hit 21,154.17 (a loss of 12.31%) on the 14th of February and had recovered a little by the 16th to close at 21,720.25.
We consider that volatility is part and parcel of any portfolio and whilst the current levels are not particularly welcome, particularly after a lack of it recently, it is inevitable and is higher in the higher risk portfolios, which have also (as one would expect) returned higher levels of growth. Portfolios are generally no lower than they were three months ago, with figures for the 16th of November to the 16th of February demonstrating that the FTSE 100 fell from 7,372.61 to 7,294.70 (down 1.06%), the Dow Jones increased from 23,458.36 to 25,219.38 (+7.51%), the Hang Seng rose from 29,018.76 to 30,515.60, an increase of 5.16%, and the Nikkei 225 fell from 22,351.12 to 21,720.25 (down 2.82%). Whilst these figures do not cover every market in which our clients’ monies are invested, they hopefully demonstrate the importance of keeping one’s nerve during market ups and downs!
November 2017 review
There have been significant changes this quarter, two funds having been replaced (UK Equity and Asia Pacific) and percentage allocations to most sectors having been amended slightly to reflect our current market view. Clients have been advised by email wherever possible (to reduce our carbon footprint) and in writing (where an email address has not been provided).
These decisions follow some underperformance which we consider to be due largely to the size of the funds in question, making them somewhat “unwieldy” and unable to exploit the opportunities that smaller, more agile, funds can achieve. The alternative funds both continue to demonstrate consistently above average performance and, after due diligence, are felt to be more appropriate.
As with all fund replacements, Where this is held in a taxable environment and therefore potentially subject to Capital Gains Tax (“CGT”) on gains in excess of the annual exemption of £11,300, clients can choose to switch and accept the tax on the gain or alternatively may opt to retain the holding. However, previous experience has demonstrated that retaining a fund that is no longer deemed to be appropriate simply to avoid tax can result in underperformance in the portfolio, and therefore the recommendation is that the switch is effected. Letting the tax “tail” wag the investment “dog” is not a strategy that we at Ribble Wealth Management Limited feel to be appropriate.
August 2017 review
This quarter’s review of funds has resulted in a change to a number of the model portfolios, with one fund being replaced in the Emerging Markets Equity sector, affecting clients in model portfolios with risk levels between 7 and 10 inclusive. Specific fund names (both outgoing and incoming) have been advised to clients in writing.
The decision has been reached following ongoing underperformance in the outgoing fund and its “soft” closure. A soft closure is typically brought in when a fund has become too large and, in order to discourage further investment, an initial charge is introduced to make the fund artificially more expensive than similar funds in the same asset class. The fund in question has a 2% initial charge and given the fund size, is deemed by Ribble Wealth Management Limited’s Investment Committee to be too unwieldy and a more agile fund with an excellent track history is preferred as an alternative.
Where a holding exists outside the tax-free environment of ISA and/or SIPP (i.e. in an investment potentially subject to Capital Gains Tax (“CGT”)), clients will have the opportunity to make the switch if to do so will not exceed their CGT allowance of £11.300 for the current tax year. If the switch will result in a CGT liability (bearing in mind that the fund has produced over 17.50% growth in the past twelve months (data provided by Financial Express Limited via Synaptic Software Limited)), clients will be offered the choice of (a) retaining their holding until the next tax year; (b) retaining part of their holding and effecting a partial switch; or (c) effecting the switch and paying any Capital Gains Tax liability.
May 2017 review
We have carried out a review of our model portfolios (risk levels two to ten inclusive) and find that the constituent funds in each portfolio have continued to meet our expectations in terms of both returns and risk. As would be expected, as the risk profile increases in each portfolio, so does the expected annual return. In addition, we have carried out detailed analysis and (again, as expected) have established that the overall Ongoing Charges Figure (“OCF”) of each portfolio increases with risk, from an OCF of 0.53% p.a. for risk level two up to an OCF of 1.07% p.a. for risk level ten. This is due to the fact that more esoteric funds and geographies tend to be more costly to administer (i.e. a simple Fixed Interest “tracker” fund will be cheaper to operate than an actively managed Emerging Markets Equity fund).
As a result of Ribble Wealth Management Limited’s Investment Committee’s research, there have been no changes to the recommended portfolios for the second quarter of 2017.
February 2017 review
We continue to monitor the funds in our Central Investment Proposition on a quarterly basis and, having carried out a review of these, remain content with each of the individual funds within the model portfolios. As a result of this careful research, no changes have been deemed appropriate for quarter one 2017.
Brexit appears to have had no real effect on markets; indeed, as a result of the weakness of Sterling compared with other major currencies, particularly the US Dollar and the Euro, exports (which have become relatively cheap) have increased, with a positive effect on markets overall.
November 2016 review
The impact of Brexit remains an unknown; volatility is likely to remain high in the short-term, but Ribble Wealth Management Limited’s Investment Committee considers that longer-term investment principles remain unchanged. There have been no changes to any of the individual funds within the model portfolios, although some of the portfolios have been adjusted slightly to reflect changes to the recommended asset allocation levels. These changes will be reflected in future investment reviews.
Performance of the portfolios since inception, nine months ago, has been analysed and continues to confirm that the portfolios perform in line with expectations.
August 2016 review
Having carried out the regular quarterly review of Ribble Wealth Management Limited’s “model” portfolios, whilst there have been no changes to the recommended constituent funds (due to a “wait and see” approach being adopted as a result of the volatility in markets following the recent vote in the European Referendum), Ribble Wealth Management Limited’s Investment Committee has identified a cheaper class of one of the funds available via the Standard Life platform. The current share class is “I”, but the “K” share class has been created as a result of Standard Life’s negotiations with the fund provider, the latter enjoying an Ongoing Charges Figure (“OCF”) of 0.08% p.a. less. As a result, all clients holding this fund via the Standard Life platform (in model portfolio risk levels four to eight inclusive) will be contacted and a switch recommended to the cheaper fund class. No Capital Gains Tax (“CGT”) issues arise as a result of this fund switch as HMRC have deemed that switches between share classes, or switches between Income and Accumulation units, are exempt from CGT. Clients holding the fund within the Novia platform do not have access to the “K” share class and will therefore not been contacted as a result.
Brexit was, of course, featured high on the agenda but since it was considered that this was unlikely to impact on longer-term investment principles, no action was deemed appropriate.
An analysis of the six months since inception has been carried out, and whilst it is acknowledged that this is still a relatively short period of time, we are delighted with the returns from our portfolios.
May 2016 review
The first quarterly review of the various portfolios identified some short-term underperformance by one of the funds relative to its peer group, but insufficient to justify its removal from the models. Consequently, it was agreed to maintain and monitor the fund. All other funds were deemed to be at least satisfactory and no changes were therefore viewed as being appropriate.
Performance since inception (just three months ago) has been analysed and whilst regulations do not allow for periods of less than twelve months to be published, the figures confirm that, even in the short term, the greater the level of risk attributed to each portfolio, the greater the return.